TB WOODS' CORPORATION

                          EMPLOYEE STOCK PURCHASE PLAN

     The TB Woods'  Corporation  Employee  Stock  Purchase  Plan (the "Plan") is
intended  to  provide  the  eligible  employees  of TB Woods'  Corporation  (the
"Company") a convenient  means of  purchasing  shares of the  Company's  Class A
common stock,  par value $ .01 per share (the "Stock").  The Plan is intended to
qualify as an "employee  stock  purchase plan" under section 423 of the Internal
Revenue  Code of 1986,  as  amended  (the  "Code"),  and shall be  administered,
interpreted and construed in a manner  consistent with the  requirements of that
section of the Code.
                                    ARTICLE I
                                   DEFINITIONS

     1.1. "Account" means the bookkeeping  account established on behalf of each
Participant by the Committee to record payroll deduction  contributions  made by
such Participant and shares of Stock purchased on his behalf.

     1.2. "Board" means the Board of Directors of the Company.

     1.3.  "Business Day" means each day on which the New York Stock Exchange is
open for business.

     1.4.  "Compensation"  means  all  regular  salary,  wages or  earnings  but
excluding overtime, commissions,  bonuses, amounts realized from the exercise of
a qualified or nonqualified  stock option and other special incentive  payments,
fees or allowances.

     1.5.  "Committee" means the committee appointed pursuant to Article VIII to
administer the Plan.

     1.6.  "Employee"  means any  person  who is  employed  by the  Company on a
full-time basis or a part-time basis and whose customary employment is more than
20 hours per week.

     1.7.  "Effective  Date" means April 1, 1997,  subject to the  provisions of
Section 9.8 of the Plan.

     1.8. "Entry Date" means January I of each Plan Year.

     1.9.  "Offering  Commencement  Date" means the first  Business  Day of each
Offering Period.

     1.10. "Offering Period" means each calendar quarter.

     1.11.  "Offering  Termination  Date"  means the last  Business  Day of each
Offering Period.

     1.12.   "Participant"  means  an  Employee  who  has  met  the  eligibility
requirements  of Article 11 and who has  elected to  participate  pursuant to an
election under Section 3. 1.
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     1.13.  "Plan Year" means the 12-month  period  ending  December 3 1, except
that the initial  Plan Year shall  commence  April 1, 1997 and end  December 31,
1997.

     1. 14.  "Shares"  means  shares  of Stock  that have  been  allocated  to a
Participant's  Account.

     1.15. "Year of Service" means a consecutive 12-month period during which an
individual was an Employee.

                                   ARTICLE II
                                   ELIGIBILITY

     2.1.  Eligibility.  Except as provided  in Section 2.2 and Section  3.6, an
Employee who has  completed  one Year of Service  prior to April 1, 1997 and who
continues to be employed by the Company shall be eligible to  participate in the
Plan as of April 1, 1997. All other Employees, except as provided in Section 2.2
and Section 3.6,  shall be eligible to  participate  in the Plan as of the Entry
Date coinciding with or next following the completion of one Year of Service.

     2.2.  Eligibility  Restrictions.  A  Participant  who  elects to  terminate
participation  in the Plan in  accordance  with Section 3.5 shall be  prohibited
from  participating  in the Plan until the Entry Date next following the date of
such termination.

                                   ARTICLE III
                                  PARTICIPATION

     3.1.  Commencement  of  Participation.  An eligible  Employee  may become a
Participant  in the Plan on any  Entry  Date by  completing  an  enrollment  and
payroll  deduction  form and  delivering  it to the Company in  accordance  with
procedures established by the Committee.

     3.2. Payroll Deduction.  At the time a Participant files his enrollment and
payroll  deduction  form, he shall elect to have after-tax  deductions made from
his  Compensation  at a rate of not less than one  percent  and not more than 15
percent.

     3.3.   Participants'   Accounts.   All  payroll   deductions  made  from  a
Participant's Compensation shall be credited to his Account and used to purchase
shares of Stock in  accordance  with  Article  V.  Contributions  credited  to a
Participant's  Account shall not accrue  interest or earnings  during the period
prior to being used to purchase shares of Stock in accordance with Article V.

     3.4.  Changes  in  Payroll  Deductions.  The  percentage  designated  by  a
Participant as his rate of  contribution  under Section 3.2 shall  automatically
apply to  increases  and  decreases in his  Compensation.  Except as provided in
Section 3.5, a Participant may elect to change the rate of his  contributions to
any other  permissible  rate  effective as of the first day of the first payroll
period of any Offering Period provided the Participant files written notice with
the Committee of an election to change his  contribution  rate at least ten (10)
Business Days before the effective date of the election.

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     3.5.  Suspension and Resumption of Payroll  Deductions.  A Participant  may
terminate contributions under the Plan as of the first day of any payroll period
by filing  written  notice thereof with the Committee at least ten (10) Business
Days  before  the  effective  date of the  termination.  A  Participant  who has
terminated  his  participation  in the Plan in  accordance  with  the  preceding
provisions, shall be prohibited from resuming contributions under the Plan until
the following Entry Date. A Participant whose contributions have been terminated
in accordance with the preceding provisions,  may resume contributions under the
Plan in accordance with Section 2.2.

     3.6.  Restrictions on Participation.  Notwithstanding any provisions of the
Plan to the contrary,  no Employee  shall be granted an option to participate in
the Plan under the following conditions:

          3.6.1.  No Employee shall be granted an option if,  immediately  after
     the grant, such Employee would own stock,  and/or hold outstanding  options
     to purchase stock, possessing 5% or more of the total combined voting power
     or value of all  classes  of stock of the  Company  (for  purposes  of this
     paragraph,  the  rules  of  section  424(d)  of the  Code  shall  apply  in
     determining stock ownership of any Employee); or

          3.6.2. No Employee shall be granted an option which permits his rights
     to purchase  Stock  under the Plan and all other  employee  stock  purchase
     plans (as described in section 423 of the Code) of the Company to accrue at
     a rate which exceeds $25,000 of fair market value of such Stock (determined
     at the time such option is granted)  for each  calendar  year in which such
     option is outstanding at any time. For purposes of this Section 3.6.2:

               3.6.2.1. the right to purchase stock under an option accrues when
          the option (or any portion thereof) first becomes  exercisable  during
          the calendar year;

               3.6.2.2.  the right to purchase  stock under an option accrues at
          the rate  provided in the option,  but in no case may such rate exceed
          $25,000 of fair  market  value of such stock  (determined  at the time
          such option is granted) for any one calendar year; and

               3.6.2.3.  a right to purchase  stock which has accrued  under one
          option  granted  pursuant a plan may not be carried  over to any other
          option.


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                                   ARTICLE IV
                                    OFFERINGS

     4.1. Quarterly  Offerings.  The Plan shall be implemented through quarterly
offerings  of the  Company's  Stock.  Each  Offering  Period  shall begin on the
Offering Commencement Date and shall end on the Offering Termination Date.

     4.2.  Purchase Price.  The "Purchase Price" per share of Stock with respect
to each Offering Period shall be the lesser of-

          4.2.1.  Ninety (90) percent of the official closing price of the Stock
     on the Offering Termination Date on the New York Stock Exchange (or on such
     other national securities exchange upon which the Stock may then be listed,
     hereinafter  referred to as the "Exchange") or if no sale of Stock occurred
     on such date, the official closing price on the preceding  Business Day- or

          4.2.2.  Ninety (90) percent of the official closing price of the Stock
     on the Offering  commencement  date on the Exchange (or if no sale of Stock
     occurred on such date, the closing price on the preceding business day.

     4.3. Maximum Offering. The maximum number of shares of Stock which shall be
issued under the Plan,  subject to adjustment upon changes in  capitalization of
the Company as provided in Section 9.3,  shall be 500,000  shares.  If the total
number of shares which would be purchased during any Offering Period exceeds the
maximum  number  of  available  shares,  the  Committee  shall  make a pro  rata
allocation  of the  available  shares  in a  manner  that  it  determines  to be
equitable  and the balance of payroll  deductions  credited  to the  Accounts of
Participants shall be returned to such Participants as soon as  administratively
practicable.

                                    ARTICLE V
                                PURCHASE OF STOCK

     5.1.  Automatic   Exercise.   On  each  Offering   Termination  Date,  each
Participant  shall  automatically  and  without any act on his part be deemed to
have purchased  Stock to the full extent of the payroll  deductions  credited to
his Account during the Offering Period ending on such Offering Termination Date.

     5.2.  Fractional Shares.  Fractional shares of Stock may be purchased under
the Plan.

     5.3.  Acquisition of Stock. The Company may acquire Stock for use under the
Plan from authorized but unissued shares, treasury shares. in the open market or
in privately negotiated transactions.

     5.4. Accounting for Purchased Stock. All shares of Stock purchased pursuant
to Section 5.1 shall be  allocated  as Shares to the  appropriate  Participant's
Account as of the Offering  Termination Date on which such shares are purchased.

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<PAGE>

                                   ARTICLE VI
                                   ACCOUNTING

     6.1.  General.  The  Committee  shall  establish  procedures to account for
payroll  deductions  made by a  Participant,  the  number  of  Shares  of  Stock
purchased  on a  Participant's  behalf and the number of Shares  allocated  to a
Participant's Account.

     6.2.  Allocation  of Stock.  Shares of Stock  allocated to a  Participant's
Account  shall be  registered  in the name of the Company or its nominee for the
benefit of the Participant on whose behalf such shares were purchased.

     6.3. Accounting for Distributions. Shares of Stock distributed or sold from
a  Participant's  Account  shall be  debited  from  his  Account  on a  first-in
first-out basis.

     6.4. Account Statements. Each Participant shall receive at least semiannual
statements  of all  payroll  deductions  and  shares of Stock  allocated  to his
Account together with all other transactions affecting his Account.

                                   ARTICLE VII
                          WITHDRAWALS AND DISTRIBUTIONS

     7.1.  Withdrawal of Shares.  A Participant may elect to withdraw any number
of Shares  allocated to his Account by providing  notification to the Company in
accordance   with   procedures   established  by  the  Committee.   As  soon  as
administratively  practicable following notification of a Participant's election
to withdraw  Shares,  the Committee shall cause a certificate  representing  the
number of Shares to be withdrawn to be delivered to the Participant.

     7.2. Distribution Upon Termination. As soon as administratively practicable
after a Participant's termination of employment with the Company for any reason,
a certificate representing all of such Participant's Shares shall be distributed
to him (or his executor, in the event of his death).

     7.3.  Distribution  of  Payroll  Deductions.  In the  event  a  Participant
terminates his employment with the Company or his  participation  in the Plan is
terminated  pursuant to Section  3.5,  any payroll  deductions  allocated to his
Account and not yet applied to purchase  Stock in  accordance  with  Section 5.1
shall  be  distributed  to him in a cash  lump  sum as soon as  administratively
practicable thereafter.

                                  ARTICLE VIII
                                 ADMINISTRATION

     8.1.  Appointment  of  Committee.  The Board shall  appoint a Committee  to
administer  the Plan,  which shall consist of no fewer than three  members.  The
Board may from time to time appoint members to the Committee in substitution for
or in addition to members previously  appointed and may fill vacancies,  however
caused, in the Committee.



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<PAGE>

     8.2.  Authority of Committee.  The Committee shall have the exclusive power
and authority to administer the Plan, including without limitation the right and
power to interpret the provisions of the Plan and make all determinations deemed
necessary or advisable  for the  administration  of the Plan.  All such actions,
interpretations  and  determinations  which are done or made by the Committee in
good  faith  shall  be  final,  conclusive  and  binding  on  the  Company,  the
Participants  and all other  parties and shall not subject the  Committee to any
liability.

     8.3  Committee  Procedures.  The Committee may select one of its members as
its  Chairman  and shall hold its  meetings at such times and places as it shall
deem advisable and may hold telephone meetings.  A majority of its members shall
constitute a quorum.  All  determinations  of the  Committee  shall be made by a
majority of its members.  Any decision or  determination  reduced to writing and
signed by a majority of the members of the Committee shall be as fully effective
as if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and  regulations for
the conduct of its business as it shall deem advisable.

     8.4. Expenses.  The Company will pay all expenses incident to the operation
of the Plan,  including the costs of recordkeeping,  accounting fees, legal fees
and the costs of delivery of stock certificates to Participants.

                                   ARTICLE IX
                                  MISCELLANEOUS

     9.1.   Transferability.   Neither   payroll   deductions   credited   to  a
Participant's  Account nor any rights with regard to the purchase of Stock under
the Plan may be assigned,  transferred,  pledged or otherwise disposed of in any
way by  the  Participant  other  than  by  will  or  the  laws  of  descent  and
distribution.

     9.2. Status as Owner.  Each Participant  shall be deemed to legally own all
shares of Stock  allocated  to his Account and shall be entitled to exercise all
rights associated with ownership of the shares,  including,  without limitation,
the right to vote such  shares in all  matters  for which  Stock is  entitled to
vote, receive dividends,  if any, and tender such shares in response to a tender
offer.

     9.3.  Adjustment  Upon  Changes  in  Capitalization.  In  the  event  of  a
reorganization,  recapitalization,  stock split, spin-off, split-off,  split-up,
stock dividend, combination of shares, merger, consolidation or any other change
in the  corporate  structure of the Company,  or a sale by the Company of all or
part of its assets, the Board may make appropriate adjustments in the number and
kind of shares which are subject to purchase  under the Plan and in the exercise
price applicable to outstanding options.

     9.4.  Amendment and  Termination.  The Board shall have complete  power and
authority to terminate or amend the Plan (including without limitation the power
and authority to make any  amendment  that may be deemed to affect the interests
of any Participant adversely); provided,

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<PAGE>
however,  that the Board shall not,  without the approval of the shareholders of
the Company (i) increase the maximum number of shares which may be offered under
the Plan (except  pursuant to Section 9.3)- (ii) modify the  requirements  as to
eligibility for  participation  in the Plan; or (iii) in any other way cause the
Plan to fail the requirements of section 423 of the Code.

     The Plan and all rights of Employees hereunder shall terminate:  (i) at any
time,  at the  discretion  of the  Board,  in which  case any  cash  balance  in
Participants'  Accounts  shall  be  refunded  to  such  Participants  as soon as
administratively  possible-  or (ii) on the Offering  Termination  Date on which
Participants  become  entitled  to  purchase  a number of  shares of Stock  that
exceeds the maximum number of shares available under the Plan.

     9.5. No  Employment  Rights.  The Plan does not,  directly  or  indirectly,
create in any Employee any right with respect to  continuation  of employment by
the  Company  and it  shall  not be  deemed  to  interfere  in any way  with the
Company's  right to  terminate,  or otherwise  modify,  an  Employee's  terms of
employment at any time.

     9.6.  Withholding.  To the extent any payments or distributions  under this
Plan are subject to Federal,  state or local taxes, the Company is authorized to
withhold  all  applicable   taxes.  The  Company  may  satisfy  its  withholding
obligation  by (i)  withholding  shares of Stock  allocated  to a  Participant's
Account,  (ii) deducting cash from a Participant's  Account,  or (iii) deducting
cash from a  Participant's  other  compensation.  A  Participant's  election  to
participate  in the Plan  authorizes  the  Company  to take  any of the  actions
described in the preceding sentence.

     9.7. Use of Funds.  All payroll  deductions  held by the Company under this
Plan may be used by the Company for any corporate  purpose and the Company shall
not be obligated to hold such payroll deductions in trust or otherwise segregate
such amounts.

     9.8. Shareholder Approval.  Notwithstanding the provision of Section 1.7 of
the Plan, the Plan shall not take effect until approved by the  shareholders  of
the Company.

     9.9.  Choice of Law.  Except to the extent  superseded  by Federal law, the
laws of the State of Delaware will govern all matters relating to the Plan.

                                     * * * *

     To record the adoption of the Plan,  TB Woods'  Corporation  has caused its
authorized  officers to affix its Corporate name and seal this 1st day of March,
1997.

[CORPORATE SEAL]                                TB Woods' Corporation

Attest:  /s/ Emma K. Gross                      By:  /s/ David H. Halleen

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